Toromont Industries: A Defensive Compounder Positioned for Structural Growth
- marchesglobauxhec
- Nov 8
- 5 min read
Updated: 5 days ago
Editor’s Note
This publication marks the second edition of our 2025 research series at Marchés Globaux. This year, our focus remains on uncovering compelling opportunities within the Canadian equity landscape, particularly companies that may not always be in the spotlight but demonstrate strong strategic positioning and fundamentals.
Introduction
In this report, we turn our attention to Toromont Industries Ltd. (TSX:TIH), one of Canada’s most resilient industrial compounders. Toromont’s position as a major Caterpillar dealer provides a steady foundation of recurring product-support revenue. At the same time, its growing exposure to data-center power systems and energy-efficient refrigeration offers structurally stronger long-term growth drivers.
The company represents a rare intersection of defensive earnings quality and expansion optionality, supported by a strong balance sheet, disciplined capital allocation, and a proven ability to navigate cyclical end-markets. As infrastructure investment accelerates across Eastern Canada and demand for power-generation solutions increases alongside digital infrastructure growth, Toromont stands well-positioned to compound value over time.
Investment thesis
Toromont delivers a balanced mix of recurring, service-based revenue and exposure to long-term structural growth. Its Caterpillar dealership provides a stable foundation of high-margin product-support income, while CIMCO extends the company into energy-efficient refrigeration and thermal systems, markets supported by modernization and sustainability initiatives.
With a net cash balance sheet, Toromont retains the flexibility to reinvest organically, pursue selective bolt-on acquisitions, and continue steady dividend growth. Combined with disciplined capital allocation and a 13.6% ROIC as of Q3 2025, these attributes position Toromont as one of the most durable and consistently compounding industrials in Canada.
Company overview and segments
Headquartered in Concord, Ontario, Toromont Industries Ltd. (TSX:TIH) was founded in 1961 and operates across Canada and parts of the United States. The company supplies, rents, and services specialized capital equipment, while also providing engineered refrigeration and thermal solutions. Toromont’s strong service culture has contributed to a stable recurring revenue base. In the last twelve months, the company generated approximately $5 billion in revenue and employed more than 7,000 people. Its operations are divided into two core segments: The Equipment Group and CIMCO Refrigeration.
The Equipment Group is the larger of the two, representing roughly 90% of revenue depending on the quarter. Toromont is one of Caterpillar’s largest dealers by geographic footprint, covering Ontario, Quebec, Atlantic Canada, and Nunavut. The segment includes equipment sales, rental operations, power systems, and material-handling services, with product support (parts, service, rebuilds) forming a high-margin recurring component.
CIMCO Refrigeration, while smaller, serves as a meaningful growth driver. In Q3 2025, the segment grew ~22% year-over-year, reflecting strong demand for energy-efficient and decarbonization-focused refrigeration systems. CIMCO operates across recreational facilities such as ice arenas and industrial applications (cold storage and food processing). The division generates value through system engineering, project execution, and a durable after-sales service stream.
Business Model & Strategic Positioning
Toromont operates one of Caterpillar’s most strategically important dealership regions. The company stands out for its balanced revenue mix: cyclical equipment sales are complemented by a high-margin, recurring product-support base, which has historically helped stabilize earnings across economic cycles.
The Equipment Group contributes the majority of EBITDA through construction, mining, and power-system operations. CIMCO adds diversification and positions Toromont to benefit from efficiency and electrification trends. In February 2025, Toromont increased exposure to power-generation and data-infrastructure markets through a 60% acquisition of AVL Manufacturing, a producer of enclosures and integrated systems used in data centers and backup power applications across North America. This positions Toromont to participate in the long-cycle power demand associated with cloud computing and AI-driven infrastructure growth.
Compared with its peer Finning International, which is more heavily tied to commodity-driven regions (Western Canada, Chile), Toromont’s footprint is tied to infrastructure, utilities, and power investment in Eastern Canada, markets that generally exhibit lower earnings volatility. This, combined with a net cash balance sheet, supports Toromont’s valuation premium relative to peers.
M&A and Capital Allocation
Toromont has historically favored disciplined, bolt-on acquisitions that enhance service capacity and reinforce existing verticals. The AVL transaction is consistent with this approach, expanding Toromont’s reach into distributed energy and data-center infrastructure. AVL reported significant growth following capacity expansions in Hamilton, Ontario and Charlotte, North Carolina, providing multi-year revenue visibility supported by backlog. While modestly dilutive to EPS in early integration, AVL is strategically aligned and expected to contribute more meaningfully over time.
Dealer territory consolidation within the Caterpillar ecosystem remains limited due to strict territorial frameworks, meaning acquisition opportunities tend to be selective. With ~$1B in cash and ample liquidity, Toromont maintains flexibility to pursue opportunities while prioritizing organic investment, fleet utilization, and stable dividend growth. The balance sheet strategy remains conservative and consistent.
Long-Term Outlook
AVL further positions the company to participate in the long-duration trend of data-center electrification and distributed generation, an area with structurally higher growth rates than traditional heavy equipment. Combined with CIMCO’s role in energy-efficient industrial systems, Toromont is well-situated to remain a steady and resilient industrial compounder.
AVL further positions the company to participate in the long-duration trend of data-center electrification and distributed generation—an area with structurally higher growth rates than traditional heavy equipment. Combined with CIMCO’s role in energy-efficient industrial systems, Toromont is well-situated to remain a steady industrial compounder.
Valuation
At current levels, Toromont trades at a premium to domestic heavy-equipment peers, reflecting the quality and stability of its earnings mix. The company trades at a mid-20s forward P/E and low-teens EV/EBITDA, broadly consistent with the upper end of its historical range.
However, the recent multiple expansion appears to have been driven more by flight-to-quality demand and Toromont’s strong balance sheet than by accelerating earnings momentum. Earnings growth has moderated in recent years, and while scale has supported margin expansion, return metrics have compressed modestly due to lower leverage and a larger invested capital base. In this sense, the stock is increasingly valued as a durable compounder and defensive industrial, rather than a cyclical recovery play.
While equipment margins may normalize and mining deliveries may vary, Toromont’s recurring product-support revenue, exposure to long-cycle infrastructure investment, and net cash position underpin a resilient free cash flow profile. That said, we believe much of the structural growth and balance sheet optionality is now reflected in the current valuation, leaving limited room for further multiple expansion without stronger earnings acceleration.
Risks
Toromont’s risks stem primarily from the end-markets it serves rather than from its financial position. Demand in construction, mining, and infrastructure is inherently cyclical and can fluctuate with public spending levels and commodity price movements. In addition, equipment margins may normalize following several years of favorable pricing, while ongoing inflationary pressure could affect cost structures.
The company’s exclusive reliance on Caterpillar as its OEM partner also introduces concentration risk. Further, the successful integration of acquisitions, cybersecurity safeguards, and retention of technical talent remain important operational considerations. Together, these factors underscore the importance of Toromont’s disciplined cost management and recurring product-support revenue in sustaining performance across cycles.
Thomas Boudreau, Antoine Dussault, Frédéric Lussier, Abdur Raoup Mohammed
Disclosures
This document has been produced by Marchés Globaux HEC (“MGH”) strictly for academic and informational use. The views, forecasts, and assessments presented are derived from publicly accessible sources that are believed to be accurate at the time of preparation; however, MGH has not conducted any independent verification of such data. Nothing in this document should be interpreted as investment advice, a solicitation, or a recommendation to buy, sell, or hold securities, nor as a valuation or professional opinion under Canadian or other applicable regulations.
MGH operates as a student-led initiative. Its authors are not registered financial advisors, legal experts, or accounting professionals, and the content herein is provided solely to foster discussion and learning. This material is intended exclusively for educational purposes and may not be copied, quoted, or distributed in whole or in part without prior written approval from MGH.
